Download Crash of 1929 vs the Crash of 1987

THE GREAT
DEPRESSION
SIMILAR EVENTS
Speculation-stocks had become over valued
 Mismatch of Buyers and Sellers-on the day of
the crashes the number of sellers was far
greater than the number of buyers
 Higher Trading Volume-Both times many stocks
changed hands

DIFFERENCES
The economy of 1929 had already entered a
period of contraction before the crash
 The economy of 1987 had been expanding
since 1982
 Because of this expansion in 87’, the economy
may have been more resilient and stronger

BANKING CRISIS
Between 1930 and 1933 over nearly 10,000
banks closed their doors and money supply fell
by 31 percent
 Contraction of the money supply was also
compounded by the actions of the Federal
Reserve, which fearing rapid credit expansion,
began to tighten its monetary policy

RESPONSE TO BANKING CRISIS NOW
BANKING CRISIS
Bank loans were called in due to liquidity
pressures
 Businesses had a hard time getting finance for
their operations
 In 1987 the Federal Reserve injected liquidity
into the market and there was additional help
from the Federal Deposit Insurance Corporation

INTERNATIONAL FACTORS
Gold Exchange Standard in the 1930’s made
economic conditions in various countries
closely related
 Beggar-Thy-Neighbor trade policies lead to
protectionism during the great depression
 In the 1980’s International trade was beginning
to take off. Markets were being opened
revealing many new opportunities for investors
and businesses

THERE IS STILL DEBATE ABOUT THE TRUE
CAUSES OF THE GREAT DEPRESSION

Kenneth Galbraith Wrote, “on the whole, the great stock market
crash can be much more readily explained than the depression
that followed it. And among the problems involved in assessing
the causes of the depression none is more intractable than the
responsibility to be assigned to the stock market crash.”
-The Great Crash:1929

There is still a debate about concerning which factors caused
the depression and how much weigh each factor should be
given
SOURCES
The Great Crash by J.K. Galbraith
 U.S. Market Crashes by J.D. Stiver
 Achieving Economic Stability: Lessons From the
Crash of 1929 by G.H. Stern (Federal Reserve)
